Fair Minimum Wage Act of 2007

FAIR MINIMUM WAGE ACT OF 2007 -- (Senate - January 31, 2007)

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Mr. GRASSLEY. Mr. President, previous to Senator Baucus speaking, we heard my friend from Massachusetts harangue about minimum wage not being considered for the last 10 years and that it is about time we get the job done. I am going to be one of those to vote yes to get the job done, to increase the minimum wage. But I think it is legitimate to ask a couple of questions. One, there was a period of time during that 10 years that Senator Kennedy's party was in the majority and controlled the Senate. I don't recall them bringing up the minimum wage issue at that particular time. If it was so important that it be done before this period of time has elapsed, I would have thought they would be voicing concern about raising the minimum wage as much and have a responsibility to do it when they were in the majority, as it is now; and we are accused because we want to amend some tax provisions to it, which are very directly related to some of the negative impacts of increasing the minimum wage on small business, and it is a very legitimate point to bring up.

The second point I will bring up to the Senator from Massachusetts is, when he talks about adding tax provisions to the minimum wage, has he forgotten that during the signing ceremony of the last increase in the minimum wage bill by President Clinton Senator Kennedy was praised for bringing a bill to the President that had tax provisions that were very beneficial to small business and also other provisions that were very beneficial to minimum wage workers by increasing the minimum wage?

I read from President Clinton's statement last week during the debate. I know Senator Kennedy heard me say that. And yet it seems like it went in one ear and out the other because here he is saying it is wrong now, that when we are increasing the minimum wage, we have a small business tax provision included with the minimum wage increase.

It makes me wonder if there is a double standard: It is okay to have tax bills connected with a minimum wage increase when there is a Democratic President, but when there is a Republican President, it is not okay. I don't think we ought to have those sort of double standards. I think if it is okay in the case of a Democratic President, it ought to be okay in the case of a Republican President.

Plus, I could raise the issue that if it is legitimate to have tax changes to benefit small business at the same time we are having increases in the minimum wage, this tax package is very meager compared to the one that was in the bill that President Clinton signed. At that time, I believe, there was about $20 billion worth of small business tax changes to benefit depreciation and other things that can offset the detrimental impact on a minimum wage increase on small business.

We all know there is no detrimental impact on larger businesses that can pass along the cost. But for smaller businesses that can't, for struggling small businesses, in particular mom and pops, it has to be something we take into consideration not only for the benefit of the smaller business but also for the benefit of the workers who work for that small business that maybe will be more underemployed or unemployed because maybe the small business can't afford to keep the same number of workers as when the minimum wage was lower. So all of these things seem to me to be legitimately tied together.

But in the case of a $20 billion tax package 10 years ago, compared to an $8 billion tax package in this bill, and considering inflation over the last 10 years, there isn't a single person listening to this debate who doesn't know that when there are complaints about connecting together a tax bill with a minimum wage increase, compared to the last time this was done in the Clinton administration, this tax package is peanuts compared to what we did for small business then--peanuts. Yet we are having this harangue about it, that somehow this debate is not legitimate.

Well, if it was legitimate in the Clinton administration, why isn't this debate legitimate now, particularly considering the great lengths to which President Clinton went to compliment Senator Kennedy for delivering a bill to President Clinton that had provisions benefiting small business, as well as benefiting the minimum wage worker?

We are going to get a bill passed. I don't know who is complaining. What is coming up when we get done? Well, of course, the debate, I suppose, on Iraq is going to come up. And it ought to come up. We know what is coming up. We know there is not going to be any more votes on that issue this week. So if we get this bill done today or tomorrow--and I bet it will be done today--then we know that is probably going to be the last vote of the Senate this week. I think the people on the other side of the aisle who are managing this bill know that. They know when we get a couple of votes on a couple of other tax provisions, that it is limited. We know there is finality coming. There hasn't been any effort by anybody on this side of the aisle to hold up this bill, except to make sure that the impact of the minimum wage increase on small business is going to be considered the same way it was in the previous administration.

I am very happy that yesterday cloture was invoked on the Baucus substitute amendment, and it contains these two very important components about which I have already talked. For summary, in case people are now beginning to pay attention to this debate after 1 week in the Senate, the first component proposed an increase in the minimum wage.

You can make all sorts of arguments why maybe the minimum wage should not be increased. Economists can make that argument about some increase in unemployment. Some people would say you should never have passed the minimum wage in the first place in 1938. But forget those economic arguments. It is a political decision that we have had a minimum wage for the last 70 years, and it has to be a political consideration that it ought to be increased from time to time or you shouldn't have it.

So let's get over that argument, as legitimate as the economic arguments might be. They are going to be put aside because we are not going to eliminate the minimum wage. It is a part of the safety net of American society. It is part of the fabric of our society, just as Medicare, Medicaid, and Social Security. You can all argue about whether seven decades ago some of these decisions should have been made by Congress. But after a period of time, you accept it as a fact of life; they are part of the social fabric of America, and move on. It is a question now of how much.

That decision has even been answered--$2.10. It is about the same decision that is being answered in several State legislatures around the Nation, including my own State of Iowa, which now has made a decision that it ought to be $2.10, albeit triggered a little quicker than is going to be done under this bill. So we move ahead and that is taken care of.

The second component is not seven decades old, as I indicated. The Baucus substitute connects these efforts to assist small business with some changes in the tax law to benefit them. It has only been in the recent two decades that that has been an issue. But at least it recognizes something that maybe wasn't recognized before; that small business is the engine of employment in America and it ought to be recognized that, in some instances--and economists can back this up--there is some underemployment or unemployment, particularly among young people, and most particularly among minority young people.

I think it is legitimate to consider that because we make a great deal in this Congress about having programs for the unemployed, such as retraining. We make a big deal about education, vocational education, and preparing people for the workforce. But do we ever stop to think of something that doesn't cost the taxpayers one penny? And that is that vocational education goes along with a young person getting the first job that they have ever had so that they learn to get up in the morning, go to work, and be part of the workforce.

If you are not in the workforce, you are never going to work your way up the economic ladder. So getting in the workforce, learning the rules of the workforce, treating people right, taking orders, being a productive citizen is very important vocational education. So if we are creating some unemployment, particularly among minority young people, because of a decision we are making, a political decision we are making, we ought to at least take that into consideration. But for two decades now we have considered that there is some negative impact.

There is not going to be a one-for-one correlation between changes we make in depreciation schedules for small business that is going to guarantee Joe Blow or Mary Smith, teenagers working for a mom-and-pop grocery store, that they are going to be able to keep their jobs. But it is some relief across the board that is going to benefit small business, and there may be less unemployment of teenagers, less unemployment of minority teenagers so that they can get in the world of work and work themselves up the economic ladder. So the Baucus substitute is before us and will pass this body.

Despite serious policy concerns about the efforts to raise the minimum wage, we all know that public support for increasing the minimum wage remains strong. And who can argue with that? Ten years? So there is a rationale for raising it. It is pretty hard to convince anybody that as long as Congress is setting a minimum wage, it shouldn't be adjusted from time to time. So it is quite obvious. That is why we are here for that debate. So the political reality is that a majority of Senators support a minimum wage increase, not based upon being trustees of the American people but based on the proposition of being representatives of the American people. And that message is coming very clearly from the grassroots.

As predicted, the cloture vote last week showed there are not 60 votes for this minimum wage bill without the small business tax incentives. And for Senator Kennedy, who is haranguing about the fact this is not being passed fast enough, the members of his own party voted with us on that, and that seems to show it is bipartisan.

As I said before, tax incentives targeted to small business and other businesses impacted by a minimum wage increase have been linked to minimum wage legislation over the past couple of decades. Democrats have, at times, joined Republicans in supporting that linkage. Once again, Republicans have asked for small business tax relief, if a minimum wage hike is going to happen. Based on an overwhelming cloture vote yesterday on this Baucus substitute, it looks as if we are going to get there. Democrats, in effect, agree--through that vote--with this linkage.

To different groups of Senators, these topics carry their own benefits or burdens. Many on my side don't like the idea of second-guessing the labor market with a federally mandated minimum wage. In past statements, I pointed out some of the related issues that should give us pause when considering such legislation. Some, mostly Democrats, will call this bill before us nothing but a minimum wage increase bill. Some, mostly on my side of the aisle, will call it a small business tax relief bill. But isn't that how we get things done in the Senate? Doesn't almost everybody have to have a win? And in this aren't we having a win-win situation in a bipartisan way?

I suppose some of our Members are going to have it both ways, it is going to be both a minimum wage increase and a small business tax relief bill. President Bush, similar to President Clinton, whom I have already quoted, will recognize both parts of this package. If my friends on the other side of the aisle would review that statement, as I led them to review it last week, they will note that President Clinton saw merit in the small business tax relief package.

If I were chairman, I might have tilted the package a bit more toward depreciation and less toward, let's say, that portion that we call the worker opportunity tax credit. It is important these incentives coincide with the timing when the minimum wage increase will be taking effect. It has been proven that a minimum wage hike without tax relief for small business will not fly in a body where we have to move ahead in a bipartisan way or nothing gets done. Let's recognize that reality. Let's improve this bill and complete it in a timely manner.

Mr. President, I suggest the absence of a quorum.

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ALTERNATIVE MINIMUM TAX

Mr. GRASSLEY. Mr. President, next week the President's budget will come to Capitol Hill. In terms of tax issues, no issue is more pressing in the upcoming budget than resolving the alternative minimum tax issue for both the short term as well as the long term.

As many Members know, the so-called patch--the temporary fix we did last year for the alternative minimum tax so no more people would be hit by it than are presently hit by it--ran out at the end of last year. So right now 23 million people in the year 2007 could be hit by the alternative minimum tax, if we do not do something about it. Since we have to offset things such as this, if we patch this up again, it is going to take $50 billion to offset or, if it isn't offset, that means $50 billion that would come into the Federal Treasury under existing law would not come in.

Next week I will give a series of speeches in some detail. I am going to look at how we got where we are on the alternative minimum tax. I will examine the history of the alternative minimum tax and the origins of the current problem. In another speech, I am going to discuss the fiscal effects of maintaining, repealing, and replacing the alternative minimum tax. And in the third speech, I will talk about options to remedy the alternative minimum tax problem in the short term and over the long term.

Today, on a preemptive basis, I want to counter a charge that I think is going to be repeated by Democratic-leaning think tanks, maybe by the leadership of the Congress, and, more importantly, by east coast media who tend to be sympathetic to the views of those political organizations. The charge will be that the alternative minimum tax problem we face is a result of the bipartisan tax relief legislation enacted in 2001 and 2003.

I ask unanimous consent to maintain the floor and yield to the majority to make a unanimous-consent request.

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Mr. GRASSLEY. Next week, when the President's budget comes out, there is going to be an awful lot of discussion about the alternative minimum tax. I am trying to preempt--in a sense counter--what I think are old arguments that are going to be repeated about that issue. They are going to be coming from leftwing think tanks, and maybe the Democratic leadership in the Congress will pick up on it. For sure, the east coast media, who tend to be sympathetic to the views of these political organizations, is going to be loudly speaking about it. I don't find anything wrong with it being discussed, but I am going to make sure it is discussed in an intellectually honest manner.

The charge is going to be made that the alternative minimum tax problem we face now is a direct result of the bipartisan--I emphasize bipartisan--tax relief legislation that was enacted in 2001 and 2003, which, by the way, Chairman Greenspan has said, both before he left the Fed as well as a private citizen, that these tax relief packages we passed back then are the basis for the economy going very smoothly in the last 3 or 4 years, creating 7.2 million jobs. If that is the argument they are going to make--and I will bet you, although I am not a betting man, that that is what we are going to hear--it is a distortion, plain and simple. So I think I am going to try to correct the record in advance. Maybe next week, if I have done it adequately, there won't be any record to correct. I have been around here long enough to know what is going to be said.

To the extent the Democratic leadership and allies suggest, like others who have looked at this issue, that the bipartisan tax relief packages are responsible for the alternative minimum tax problem, I respond in this way: Most who have reached that conclusion have done so by misusing data, data that is provided by the truly nonpartisan Joint Committee on Taxation, an agency of Congress that you might say wears green eyeshades, looks at things as they are, without a Republican or Democratic bias. These figures of the Joint Committee on Taxation will be used to distort the record on the issue of the alternative minimum tax.

The Joint Committee on Taxation analysis suggests an alternative explanation for the alternative minimum tax problem, and that is the failure of Congress to index the alternative minimum tax for inflation when it was first established 35 years ago. The critics are going to charge that the bipartisan tax relief packages are responsible for this alternative minimum tax problem. This conclusion is reached in error because it is based upon faulty logic. Those who have done similar analyses have based their conclusions on the mistaken assumption that a reduction in Federal receipts should be interpreted as a percentage causation of the alternative minimum tax problem. The Joint Committee on Taxation was asked to project Federal alternative minimum tax revenue, if the bipartisan tax relief provisions were extended but current law hold-harmless provisions were not extended. And what do we get, a $1.1 trillion issue, and a Federal alternative tax revenue, if neither the Bush tax cuts nor the hold-harmless provisions is extended, a $400 billion issue compared to the $1.1 trillion issue.

From that data, some erroneously concluded and publicly represented that the tax cuts of 2001 and 2003 are responsible for 65 percent of the alternative minimum tax problem. In other words, this $1.1 trillion minus the $4 billion divided by $1.1 trillion. And conversely then, that the tax cuts of 2001 and 2003 tripled the size of the alternative minimum tax problem; again, $1.1 trillion divided by $400 billion. The logic used to reach that conclusion is flawed. That is what I am about to show.

This is because the many variables affecting the alternative minimum tax have overlapping results, and the order in which one analyzes those overlapping variables will directly impact the outcome of the analysis.

In that way, we can use the same Joint Committee on Taxation data in the analysis above to suggest that the failure to index is actually the dominant cause of the alternative minimum tax problem. If one were to first index--and that wasn't done 35 years ago--the current tax system for inflation by permanently extending an indexed version of the current hold-harmless provisions, Federal alternative minimum tax revenue would be reduced from $1.1 trillion to $472 billion over the 10-year period we use to guesstimate taxes coming into the Federal Treasury. Thus, extending and indexing the current hold-harmless provision for future inflation would reduce the alternative minimum tax revenues by 59 percent over the same period referred to in the Joint Committee on Taxation letter dated October 3, 2005, as ``percentage of AMT effect attributable to failure to extend and index hold harmless provision.'

I ask unanimous consent to print a copy of that entire letter in the Record.

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Mr. GRASSLEY. Let's go back to the Joint Committee on Taxation analysis. If we then assume that the tax cuts of 2001 and 2003 are repealed, alternative minimum tax revenue falls by an additional $302 billion, from $472 billion to $169 billion. That second drop attributable to the repeal of the Bush tax cuts reduces Federal revenue by only 27 percent. Thus, one should argue that failure to index is a greater cause of the alternative minimum tax problem--in other words, 59 percent versus 27 percent. If we had indexed, we wouldn't have this problem.

Using logic similar to that undertaken above would also cause us to conclude that failure to index is responsible for 59 percent of the alternative minimum tax problem or, alternatively, that failure to index also nearly triples the size of the AMT problem. But simple logic suggests that the bipartisan tax relief cannot be responsible for 65 percent of the alternative minimum tax problem and failure to index responsible for 59 percent of the problem. The anomaly arises because there is overlap between variables being analyzed. Although the analysis fairly demonstrates the amount of alternative minimum tax revenue saved by making a particular change to the Federal tax system, it is inappropriate to represent that such analysis accurately isolates causation of the alternative minimum tax. Because there is overlap in the variables being analyzed in these examples, indexing and the bipartisan tax relief packages, the order of analysis of those variables is crucial to whatever outcome we have.

The Joint Committee on Taxation acknowledges this point to us in a letter dated October 3, from which I will quote:

There is, however, interaction between these two contributing factors to the AMT effect. In order to avoid double counting of interactions, a stacking order is imposed. The apportionment of effects to each contributing factor will vary depending on the stacking order, even though the total effect remains constant.

To this point in time, I have not seen anything that accurately suggests that the 2001 and 2003 tax cuts have worsened the alternative minimum tax problem to date. It is my intention to ensure we continue to honor that commitment.

Proponents of this charge fail to recognize that we addressed the problem for 2001 through 2005 in legislation that most of these organizations opposed. By the way, those hold-harmless alternative minimum tax provisions were the first significant legislative efforts to stem the rise of the alternative minimum tax tide, meaning affecting millions more people who were never intended to be affected by it.

It was, in fact, the Finance Committee that put its money where its mouth was on the alternative minimum tax. Last year's bipartisan tax relief reconciliation did the same thing for the year 2006--in other words, to make sure that the alternative minute tax problem is not worsened. Once again, it was the bipartisan leadership of the Finance Committee that ensured millions of families would not face the alternative minimum tax problem in the tax-filing season this year.

I might say that Republicans, last year, when we were controlling, were willing to add millions of people to it because they didn't want to hold harmless completely, just to some extent. But we in the Senate stuck to our guns, and we got the hold harmless kept in place, as it had been since 2001.

I reiterate the importance of the last sentence in my remarks, where I said that the Finance Committee ensured that millions of families would not face the alternative minimum tax in this tax-filing season that we are in right now. Everyone who supported the tax relief reconciliation bill walked the walk on the alternative minimum tax. A lot of the critics I am referring to have talked that walk on the alternative minimum tax, but if you look at their voting records, they have not walked the walk on the alternative minimum tax. Thank goodness, then, 15 million families were put above politics, or you might say a bipartisan solution saw that they were not harmed because, otherwise, 15 million families would be dealing right now, as they file last year's income tax, with the AMT in their tax returns--in other words, paying the alternative minimum tax because we did not hold harmless.

If they had to deal with that, you know how complex they think the tax forms are already and the tax system is already. Well, if you have to go through that alternative minimum tax exercise, it almost doubles the complexity. Every Member who voted against the bipartisan tax relief reconciliation bill ought to think about that bottom-line reality. If that group, led by--because it tended to be very partisan--the Democratic leadership had prevailed, 15 million families concentrated in the so-called blue States would have been dealing with the alternative minute tax now. It is a fact--because higher income people tend to live in the so-called blue States, according to the results of the last two Presidential elections--they are paying more of this alternative minimum tax. They happen to be represented by people of the other political party who thought that the hold harmless provisions should not have been there. So 15 million people--most of them in those States--would be hit again.

The clock is ticking on the alternative minimum tax problem for this year. In other words, we have to do something before the end of the year or we are going to have 23 million people hit by it. A year from now then, those 23 million people will be working with the complexities of the AMT and paying the alternative minimum tax. They are people who come from those high-income States, more so than the State I come from, although we have people who are hurt by it--or would be hurt by it--but not to the extent of some of the high-income States. On October 15, a taxpayer's first quarter estimated tax payments will be due, and they will have to take this into consideration. Twenty-three million families will have to start dealing with the AMT yet this year on these quarterly estimates.

Last year, Congress acted a few weeks after April 15. Hopefully, this Congress will act before April 15. Mr. President, next week, Congress will be facing the AMT problem as the budget process moves forward. That is what is going to start this demagoguery about the AMT. To get a grip on that problem, we need to examine its history, assess its fiscal impact, and carefully consider our short-term and long-term options. I look forward to these discussions on these three topics next week. Let's use correct data when we discuss the alternative minimum tax. Let's be intellectually honest. Let's discard the partisan fuzzy math and partisan revisionist history.

Mr. President, I suggest the absence of a quorum.

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